Industry Updates for Clients & Friends of Boyd Group International

July 12, 2024

In This T&G:

• ULCCs: Delivering New Consumer Competition.
• The UA & WN AAM Plans. Really? Been Done Before

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It's Clear:

ULCCs Are Evolving Into New Mainline Consumer Options

Summary: Watch carriers such as Spirit and Frontier. They need new markets for their fleets. UA/AA/DL hubsites could be fertile new ground. Looks like suicide, but the consumer may think differently.

The recent quarterly results from Delta made it clear. A new comprehensive independent report from Swelbar-Zhong confirms it.

Airlines are starting to search for markets to fill excess seats.

Actually, Delta, American, United, Alaska and Southwest are not the capacity Visigoths at the air transportation gate. It’s ULCCs.

And it’s good news, actually. For the consumer.

Yes, as the S-W data clearly shows, the capacity issue does have a nasty effect on quarterly reports. But for the consumer, what we are looking at is a new ULCC strategy – like, a survival strategy that’s starting to barge into traffic sectors and markets which were two years ago mostly avoided by ULCCs.

More Airliners Than The Traditional ULCC Model Can Support. These entities in general are looking for places to put airplanes. The traditional safe havens of Florida and Las Vegas are getting filled. The original game was simple: offer a compelling value proposition to get consumers to spend discretionary dollars for a high-value low-cost leisure trip. Mostly this was dependent on generating net-new traffic, rather than go after major carriers’ passengers.

Lower ULCC costs and lots of free discretionary spend were the foundations. The first is going away, and the second is getting drained by economic issues.

What the traditional ULCC model now faces is declining market growth for this genre of traffic. But more compelling to the front office planners, the “U” in ULCC is evaporating fast. Staffing the flight deck is no longer an issue of lack of candidates. It’s the skyrocketing labor costs to do so. That means simply that low-fare traffic stim is getting tough to generate.

This means that ULCCs are now starting to try to nibble at the margins of major non-leisure markets.

Take a look at some of the O&D routes that Frontier is trying to enter at CLT. Hard to believe that fares alone will get consumers out of their Lazy-Boys and onto an airplane.

While it’s mostly day of week frequencies, and often in Frontier market where brand identity is near zip, make no mistake: this dynamic is still another consumer choice.

Spirit is pursuing a similar strategy. And the fact is that it’s new competition.

No guarantees – including no guarantees that that it will fail. This is new strategy.

Take Frontier at CLT. This is probably the most difficult market for any ULCC to try to enter. Heck, AA has just under 70% of the local CLT O&D and over 90% of the enplaned traffic including connecting passengers. The local O&D AA does not have is mostly based on inbound-generated passengers from other carrier’s connecting hubs.

That means that Frontier needs to take a share of the local CLT O&D from AA via very limited day-of-week frequencies or stimulate local traffic with low fares. That means F9 has to have lower fares – much lower – and hope that AA won’t match. When AA has +80% load factors, messing with yields could be damaging to the bottom line. Unless F9 starts to get a lot of traffic traction, AA will probably stand by and watch.

For carriers such as Frontier and Spirit, this could be a viable application of capacity.

The question at hand is whether the market has changed to the point where consumers will shift brand loyalty – at least from time to time – to these new entrants. If they can deliver some market advantages – such as outstanding customer service, and invests in same, there could be some interesting data to be seen in the next six months.

Actually, as it stands now, just tossing a couple of F9 flights a week to Chicago won’t do diddly to American. The metric is whether in doing so Frontier can cut a profit. If that becomes the case, then a whole new competitive picture will eventually emerge at a number of hubsite airports.

Plan on some innovative marketing and operational shifts at ULCCs. For the consumer, it will be 100% positive. There will be more competition.

At least for a while.

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Is America’s Electric Air Transportation Revolution Off & Running?

Or Just Running Out?

Major USA airlines are actively and somewhat noisily getting involved in AAM-related aircraft manufacturers. That would signal that a huge expansion of air service is at hand.

Maybe.

The Rush Is On. United Airlines has indicated it will have an air taxi system as soon as next year out of its Chicago ORD hub, reportedly with four seat eVTOL aircraft promising a range of 50 miles.

Great! Move those passengers from ORD to the Palatine eVTOL facility in just minutes! (Assuming there is a vertiport built, staffed, and in operation there.)

More headlines. Now, there’s an agreement between Southwest and Archer to collaborate on an electric air taxi operation connecting LAX with Los Angeles metro-peripheral vertiports.

Same concept: shift those passengers – all four of them – off the highway and they’ll be in Van Nuys in minutes. Again, assuming that there is a vertiport, and that the population base can get to it in a time frame that will still make the entire trip to and from LAX faster than by ground and at a fare that makes economic sense.

This gets great headlines. Sectors of the finance world go giddy announcing how events like this could make the stock of Archer and Joby and other manufacturers go up like a roman candle.

The Brain Trust Behind These Investments Is Impressive. Yes. I am fully aware that a lot of track-record-proven, suitable and sophisticated people are on board with the AAM/air taxi concept. Therefore, one can assume that these operational/logistical issues are handled. Or can we?

Been There. Done That. Long Ago In A Galaxy Far Away. It’s not a new concept. For the folks playing the aviation history home game, the concept of intra-regional, intra-metro air taxi service has been tried extensively. And consistently failed.

There was New York Airways, a helicopter service in the metro area. It lived off of subsidies from major airlines, not self-generated profits. That was in the largest USA metro area. Over the years, several accidents, including one on top of the Pan Am building that splattered wreckage across midtown Manhattan, put the end to NYA.

There was an attempt at Air New York in the early 1980s, funded by a wealthy Vietnamese businessman. Wasn’t so wealthy in a few months.

There were similar attempts in the 1950s with Chicago Airways and Los Angeles Airways. Financial black holes.

Mohawk Airlines tried branded helicopter connections between Newark and Monticello in the Catskills. Glub.

The original National Airlines tried branded service between MIA and Miami Beach. Failed.

Is Technology The Difference? Granted. That was then. This is now. There are several galaxies between the proposed eVTOL devices and the S-55s and the Vertol 107s operated back then.

But the question is whether “now” still represents a cost challenge. There have been some indications that these eVTOL machines may have operating costs (however metriced) similar to current helicopters.

So, let’s ask for some clarification:

What Is The Customer Value Equation? Question #1: What will be the cost per seat? These eVTOL manufacturers are eating up lots of investment capital which dictates that some estimates of exact break-even production should be analyzed. Then the actual operational costs have not been estimated, either.

This is not a simple issue: offering four seats to cover pilot, airport costs, aircraft ownership/lease costs, ground handling, vertiport overhead, implementing new CFR systems, security, diversions, charging capability, not to mention the airport logistics all come into the cost picture.

How Big Is The Market? When was the last time any airline acquired a large fleet of new airliners without knowing to the last micro-penny the operating costs? Or without a manufacturer guarantee on operational costs?

Where To Park 30 or 40 or 50 eVTOL Aircraft. Yup, Southwest can add x-number of eVTOL flights at LAX.

Bank on it, AA and UA, and DL may want to do so, too. (This assumes that the entire concept actually works out economically.)

Okay, then, where at ORD or LAX or MIA or JFK will these things operate from? If it’s a remote hardstand terminal, that will affect the travel-time factor. Might just be a 6-minute flight from some vertiports in a collar county to catch the flight at ORD, but if the total transit time entails a bus transfer to the main terminal, it could affect the time-value of the transaction. Or, if the consumer has a relatively long drive to and from the vertiport. Total travel time is more than what’s spent sitting on a small flying machine.

The ATC System? The vision is for these eVTOL planes to be all over the sky. Super.

Anybody notice that the air traffic control system is short staffed, poorly planned, and poorly managed. Just toss in, say, another 50 or 60 or 100 operations a day at O’Hare, and the cheerleaders for AAM had better have more than bromides about sustainability to talk about.

Answers, Please. No question that some of the applications of eVTOL and electric airliners are exciting. But the financial jury is still out.

Okay. Anybody with some answers to these issues please enlighten us.

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